Financing Highway Transportation.
—There are at least three methods of financing highway transportation: (1) Individual; (2) Partnership; and (3) Corporation.
Individual.
—The individual method may be divided into two classes: (1) Those that are a part of auxiliary to or accessory to other business, and (2) those that make up or compose the business itself.
The highway transport lines that are auxiliary to other business may be illustrated by the delivery truck of the grocer, the trucks for hauling to and from the depots of large department stores, or better the trucks owned by creameries which perform a sort of express service for the producers of milk and cream. The Fairmont Creameries, with headquarters at Omaha, operate more than 140 trucks, many of which make regular trips over established routes, picking up at the farmer’s gate full cans of cream and milk and leaving empty ones. The cost of these services, while ostensibly borne by the creamery, must of necessity be accounted for and charged to the expense of doing business or to the individual sellers of cream. The business is not run as a trucking or transportation business, but as a creamery, a department store, or a grocery, and is reckoned in as part of the annual expense or overhead charges. The motor to the truck gardener is of as much importance as any other part of his business. In fact his plant would be as handicapped without it as would a clock without its hour hand. The same may be said of practically all enterprises which depend on transportation upon the highways as a function of their business.
All such transportation, therefore, is financed in exactly the same manner as the business itself, in fact it is a part of it.
In the other class of individual ownership the business is usually so small that one person, the owner, can look after the whole of it. He may or may not have any assistants. However, he finances it as an individual. He either has the money at the beginning or is able to borrow it. If he borrows it he gives his note acknowledging the debt and stating the time or times for payment, rate of interest and any other stipulations that might have been entered into at the time of securing the loan. He will probably give a mortgage on his property, that is a writ showing the debt to be a lien on the property under which the loaner of the money may, if it is not paid as stipulated, foreclose and sell the property for the settlement of the debt. It becomes null when the note on which it is based has been paid. If, however, it has been “recorded” in the office of the Register of Deeds or other place set aside for that purpose, it will have to be “released” and the release recorded in order to clear the title to the property.
Partnership.
—An agreement of two or more persons to combine their property, labor, or skill for the purpose of transacting any particular business for their joint profit is called a partnership. The agreement may be oral or written. The partnership is just as extensive as the business it is proposed to do, but no more so. Each partner is entitled to his share of the profits as arranged for in the agreement but in the absence of any stipulation the law will presume equal shares. The partners may agree on a way of dividing the losses, but such agreement will only hold as against those to whom it is made known and credit has been given accordingly. The laws usually provide that articles of partnership may be made known generally to the public by proper publication and recording in a place designated for that purpose. Although long neglect of any articles of agreement will act as a waiver against an innocent creditor.
In a partnership the action of one partner with some exceptions, binds the whole partnership, so that rather than have several members to a partnership it is better to form a corporation. A partnership may borrow money and mortgage its property just the same as an individual.
A transport line then could be financed by each partner putting in a definite proportion of the capital. Two men might enter into a partnership and one man furnish all the capital, the other the skill and experience necessary to operate the business, the profits and losses to be shared in a manner agreed upon. However, without notice to a creditor at the time the debt was entered into each partner could be held for the entire debt if partnership property would not take care of it.
The advantages to be derived from a partnership are that larger capital may be obtained and more business done, the benefit of business skill and experience may be procured, and the work of management may be sub-divided among the several partners so that each may become more proficient, or more efficiently administer his own department.
There will be no particular difference between the financing of the partnership and the individual ownership, except perhaps more capital will come in with more partners. The partnership agreement should, to prevent misunderstanding, be carefully drawn up in writing and signed by each partner. It should state the amount and kind of capital each partner puts into the business, the relations and duties of the partners, and the manner in which profits and losses are to be shared.
Corporation.
—A corporation is a legal combination of two or more persons into an artificial personage for the purpose of carrying on some lawful business under such grants as secure to it a legal existence and power to act even though the individual memberships change.
In this type of proprietorship the individual owners called stockholders are liable for the debts of the business only to the extent of their stockholding, in some states to double the par value of their stock. The stockholders have a voice in the affairs of the business only to the extent of their ownership of stock, such ownership being evidenced by certificates of stock issued in proportion to the number of shares of stock owned. State laws are voluminous and restrictions are numerous for the regulation of corporations. The organization must be made according to law and then incorporated. It must conduct its work according to definite requirements, file regular reports, pay special taxes, and so on. The business is conducted through a board of directors elected by the stockholders at regular intervals of time specified in the articles of incorporation. The board of directors usually elects its own officers and appoints a manager or managers for the business. The operation of the business is under the direction of a manager, who may as a rule appoint his assistants and employees, unless this latter be designated to under officers. The manager is under the supervision of the board of directors, and the directors hold their office at the hands of the stockholders. So that the real owners have only an indirect supervision over the affairs of the business. The corporation is given a name and seal and is empowered to act as an individual, may borrow money, own property, sue and be sued. Notwithstanding its somewhat cumbersome machinery the corporation is a favorite form of organization possibly because of its limited liability feature, its close centralized control even though the ownership be spread over large numbers, and the amount of money handled be great.
The large transportation companies, the railways, the steamship lines, electric street cars, canals, trolley lines, pipe lines, and so on, when held under private ownership, are all organized in this manner. There are many bus lines and many truck lines already incorporated, and with time the number will, no doubt, rapidly increase.
The shares of stock usually have a par value of $100. These are sold to investors to obtain the working capital. The amount of stock is limited by the articles of incorporation and must not exceed by the laws of most states an amount conducive to good business. The stock may be either common or preferred. Holders of preferred stock have some preferment such as drawing a definite fixed rate of interest while common stock receives no dividends until the interest on the preferred stock is paid.
Corporations may also raise money by selling bonds. These are certificates of indebtedness, bearing a fixed rate of interest, payable at definite fixed periods. Like other bonds they may be either sinking-fund, serial or annuity. Bonds differ from stocks in that their owners have no voice in the affairs of the corporation.
Money may also be borrowed on the notes of the corporation signed by its officers, when authorized by the board of directors.
Since the laws of the several states vary so widely and there are so many of them, it is impossible to give even a brief synopsis here. Should any highway transport company wish to incorporate it would be well to seek the advice of a lawyer and have him draw up the articles of incorporation and see that the laws of the state are fully complied with.
Public Ownership.
—It is not the intention here to go into a lengthy discussion of the merits and demerits of public ownership, but merely to mention this as a method of financing transportation lines.
On the continent of Europe public ownership of railways and canals has long been the practice. In England there is private ownership of railways, but the post office department operates the telegraph lines. In this country the Government has built and operates several ship canals, including the great Panama canal. The state of New York owns and operates the Erie Canal. During the War the operation of railways was taken under supervision by the Government, but this has now been turned back to the several lines. The public regulation, however, of railways is so strict, that they have so little initiative and freedom left, so little power to make rates, so little choice as how to deal with employees, that they might just as well be operated by the Government. Indeed, it is frequently stated that there is quite a large minority of the American citizenship that would like to see the Government take over all the railways and operate them as it does the Post Office at the mere cost of operation and maintenance.
On the other hand, a very large number of persons believe that the best governed nation is the one least governed and that the ordinary commercial and financial laws of supply and demand should regulate prices and that private capital should govern all industries.
There are places, however, where it seems to be the part of wisdom to establish public ownership. First, where the amount of money necessary to finance and operate the enterprise becomes a menace to the rest of the country, or where it is so large that it becomes a practical monopoly, then it would seem just for the Government to step in and, as in the case of the Standard Oil Company, force an unscrambling, or else take it over and run it as a public industry.
Second, where the work is so large that it is difficult to get private enterprise to take it over without grants of privileges that would be exorbitant and, perhaps, scandalous. The building of the Panama Canal proved too great a task for a French private company. This does not say that an American company could not have completed it, but to get money for a doubtful or uncertain proposition is not easy. The great Sault Ste. Marie locks under Government control are very satisfactory, probably more so than if they were operated by private capital for private profit.
Third, public ownership is advisable where private lines of transportation fail to accommodate the public. Numerous applications are being made nowadays by railroads for the privilege of discontinuing trains on branch lines. In some cases these have been allowed by railway commissions, in others refused. But if they are not paying, the public will not indefinitely force the railways to maintain them. Then it will be proper for the Government to take them over, finance and operate them, even at a loss if necessary, providing the same work can not be done by private highway transport lines.
Likewise, street-car lines are complaining bitterly at the inroads of the automobile upon their business. But street-car lines are necessary to the social and business functions of a city. It cannot very well get along without them. The streets are hardly wide enough to accommodate the passenger and commercial traffic as it is. With the street cars off that would be doubled with very much increased congestion and loss of time and a correspondingly greater number of accidents.
The street cars in every considerable municipality must be kept going. The Des Moines strike of 1921 proved that conclusively. It may be necessary for the city governments to take them over and pay any deficit from public taxation. But even that will be money well expended.
The same arguments apply to those lines of railroad whose traffic consists largely of short haul and comparatively small lots. If they cannot be made to pay it may be necessary for the public to take them over and keep them running on their longer hauls even at a loss in order to prevent the congestion that would ensue to the public roads should all the traffic be forced to the truck. Also, trucks and buses are not altogether dependable in spells of bad weather, and there may be other conditions that would make the steam train the better and more economical transportion agent, as it always is where large quantities are to be transported. It would be better to try to regulate all transport service that each might be made into a paying proposition. If it cannot be done by regulation the powerful long arm of government will have to take charge.